Thermal Coal Market

August 8, 2018

Overall, short-term supply conditions are bearish. While persistent supply increases continue to be seen in the Atlantic, the opposite has been observed in the Pacific. Significantly lower volumes have been coming out of some key Pacific exporters e.g. Australia and Indonesia. Inventory levels across key coal consuming nations continue to increase, which will likely provide a drag on prices. We also picked up a decrease in the EU Days of Consumption which is a price negative development.

We estimate short term demand as bullish. Unseasonably low renewable output from Europe remains in place which implies higher fossil fuel utilization. We estimate marginally higher Chinese coal demand as shown by our lower implied Days of Consumption (DoC). Exceptionally strong demand from other key North Asian countries, i.e. Japan-South Korea-Taiwan, continues to be one of the key drivers in supporting NWC prices.

Macroeconomic conditions are bearish. The latest manufacturing data was weaker for most of the key coal consuming countries, which in turn indicates poor coal demand. Tightening credit conditions remain in place in the short term. This has been key in keeping downward pressure on prices since week#28. Based on our estimations, we expect tighter lending conditions to persist into next week. Our Currency Impact Index also suggests weaker purchasing power which would exert further downward pressure on prices.